Making a smart choice about finance is not everyone's cup of tea. This is because only a few of us possess formal education related to the field - and even if we had perused personal finance courses, it is probably difficult to retain or remember the same. This makes individuals feel uncertain when the question of managing funds arises.
This is a key reason why financial pitfalls have always been a topic of concern and people often seek advice for it. If you find yourself fumbling around when it comes to managing your hard-earned money and channeling it in great investment avenues, you’ve come to the right place. Here are some prominent financial pitfalls and the best ways to avoid them:
Not Saving Enough Of Your Monthly Income
Failing to make savings makes life a lot harder. Firstly, in the absence of previous savings, building an emergency fund seems to be a far cry. This means that in case of an unexpected crisis-like situation such as a medical emergency, job loss, etc. you practically don't have any funds to cover the bills, compelling you to either avail instant loans or borrow from near and dear ones. A single occasion has the power to trap you in a debt that could take years to recover.
Always remember, there is no tomorrow when it is about savings, so start saving right when you are young. Also, you really don't know what tomorrow will bring, thus, in order to reach your long term goals, it is necessary to set aside some funds to enjoy life in the future.
Accumulation Of Credit Card Debt
Individuals feel financially smart by carrying a huge number of credit cards to take care of their differing needs. They feel that they can pay off the amount anytime, as per their will. But eventually, the balance on these cards will grow bigger and become harder to pay off. Thus, one should avoid accumulating too many credit cards, along with the balance on those cards. It is always best to carry a maximum of two credit cards for meeting emergency situations.
Absence Of A Debt Plan
If you have managed to accumulate a considerable amount of debt or availed apayday loan online, you need to create a debt plan to tackle the same. Thus, just making a minimum payment every month is not enough. You need to carry the emotional weight of completely killing off small debts, even if they don't amount to much. Having a plan provides a deadline in the form of an end date to borrowers, by which, they should become debt-free.
This is nothing but emotional buying, where the subconscious mind plays a role in making purchase decisions. However, impulse buying often leads to overspending, providing a setback to one’s budget. With this frivolous mindset, you can end up in a serious debt trap, which in turn, will hinder your ability to save, thus, impacting your net worth. To contain the habit of impulse buying, identify the emotional triggers that prompt you to spend and then try to classify those items under the category of 'need 'or 'wants'. If it is a 'need', go for it; and in case it is categorized under 'wants', it is important to either defer buying the same or buying it at the cheapest price.
Paying Full Price For Every Purchase You Make
In the digital era of today, if you are still paying the full price for each and every commodity you buy or transaction you make, then you are certainly committing a deadly financial mistake. This is because there are a number of ways one can avoid paying the full price and save a great amount. There are discounts available for clothes, appliances, restaurants, consumer goods, etc. All you need to do is to spend just 5 minutes on Google to search for discounts on things you intend to buy.
Not Making Enough Investments
Savings are important for an individual, but, usually, it is not enough to help an individual reach financial independence. In order to build enough funds for retirement expenses or to achieve a bigger financial goal, it is important to invest. Not making enough investments right from the start of the career, is a financial regret people usually harbor. Investment in avenues such as bonds or stocks do sound riskier, but they carry a better chance for growth of money over the years. The earlier you start the investment, the better it is. Even if you are able to invest a small amount, don't refrain from making it. You must have heard, it is the 'time in the market' which matters!
Reckless Investment In Stock Market
Not having enough investment is bad, but, making bad investment decisions due to lack of understanding and experience is even worse. You will always be tempted to invest in easily-get-richer types schemes, but if you are unable to understand the mechanism behind the investment, you will become vulnerable to scams. In case you are new to investing in stock markets, it is always better to make a portfolio with indexed funds and diversify the assets when you have very little knowledge about the working of the stock market. To learn the different approaches for picking the index funds, you may also take the advice of the professionals available online or read the readily available literature on different aspects of investments in the stock market.
The financial choices you make during your youth have a long-lasting impact on the financial future you will have. Thus, it is always in the best interest to do thoughtful spending and make a balance between savings and investment and spendings. The spendings should be managed in such a way that in no way it eats up the share of investment and savings. You can always escalate to bigger and better life goals when you are sure that you are backed by funds to meet the same. Also, in such a scenario you can easily look back on life without any regrets, particularly the financial ones.